Formulating a balanced tariff policy

The wave of trade liberalisation during the last three decades reduced global tariffs significantly. The multilateral, regional, bilateral and even unilateral tariff reductions have now rendered tariff policies less effective. To counterbalance the downward trend of tariff, countries are increasingly adopting non-tariff measures (NTMs) some of which turn into non-tariff barriers (NTBs).
Nevertheless, tariffs are still important especially for countries like Bangladesh.  By adjusting tariffs in line with local and global demands, these countries can increase competitiveness of their products and provide wider preference to their consumers. These are, however, tricky tasks and need much caution. The critical thing here is the formulation and implementation of the tariff policy.  
Generally, a tariff policy is a policy of taxing imported or exported goods and services. These taxes mostly seek to protect domestic industries or discourage foreign goods. So, the tariff policy may be directed to certain products or, to a lesser extent, to certain countries.
Despite significant reduction of tariff rates, Bangladesh is still considered an average high-tariff economy by the international financial institutions and their peers. They argue that overall tariffs in the country have become more complex and less transparent. According to the World Trade Organisation (WTO) estimate, country's average MFN (Most-Favoured-Nation) applied tariff stood at 13.9 per cent in 2015. The World Bank, however, estimates that with para-tariffs average tariff rate reached at 26.9 per cent. The complexity and lack of transparency in tariff regime indicate that the formulation and implementation of tariff policy is a flawed exercise in the country.
In a recent in-house discussion, organised by a local policy research organisation, the issue came to the table along with some other important issues pertaining to the country's trade competitiveness.  The discussants underscored the need for clear roles of the respective national bodies on tariff policy formulation and implementation. In this connection, they referred to the Diagnostic Trade Integration Study (DTIS), done by The World Bank for Bangladesh.
The DTIS pointed out that although the Ministry of Commerce is the nodal agency for overall trade policy formulation and implementation, the ministry and its related agencies are not playing their due roles.  The study suggested that Export Promotion Bureau (EPB) needed increased private sector participation in its Board and improved statistical capacity; Bangladesh Tariff Commission (BTC) needed better capacity for tariff policy formulation; and Bangladesh Foreign Trade Institute (BFTI) needed capacity building for training and focused research to supplement outsourced research.
Although the BTC is officially entrusted to advise the government on formulating the tariff policy along with export and import policies, in reality, the commission has little room to do these things. The government's low priority to make the body functional and effective is the main cause in this regard.
Besides undermining the role of BTC, the government also empowered the National Board of Revenue (NBR) to virtually formulate the tariff policy while the board is mainly the implementing agency. True, NBR is the highest tax authority and tariff is a part of tax, still it must not be forgotten that tariff policy requires exclusive attention and can't be viewed from revenue generation perspective only.  It is simply because impact of tariff is far-reaching and multi-dimensional. Thus, tariff policy can't and shouldn't be the sole discretion of the NBR.
As suggested in the DTIS, the BTC should be made stronger with sufficient skilled manpower, logistics and financial autonomy.  It should not function as a back office of the Ministry of Commerce.  The officially defined scope of work of the commission is quite elaborate and important. It has three broader functions: trade policy, trade remedy and international trade cooperation. Compared to the scope of its work, the body has little manpower. Earlier some steps were taken, mainly during 2001-2013, to enhance the skill and technical know-how of the officials along with the improvement of logistics. But due to lack of long-term planning, these never got materialised.
Formulation of tariff policy is not limited to fixing or revising customs duties. The exercise requires grater implication of both the protection of domestic industries and promotion of competition within the industries.  It also requires considering long-term welfare gains of the economy. While local industries generally lobby for tariff and non-tariff protections, BTC needs to undertake  continuous research and monitoring of the activities of local industries-their strengths and weaknesses included.
Moreover, BTC is responsible for advising the government on bilateral, regional and multilateral trade negotiations. It also has critical role to deal with international trade disputes. These works require long-term efforts.
While DTIS rightly suggested for capacity building of the BTC, it is the policymakers' choice whether to pay heed or not. In South Asia, two relevant examples are there regarding the role of tariff commission. The Indian Tariff Commission was restructured and strengthened in 1997 with responsibilities to make recommendations as an expert body on all tariff-related issues along with fixation, revision and rationalisation. It is also responsible for doing research and technical analyses on trade related issues. One of the ongoing major activities of the body is studying the inverted duty structure on products in a view to supporting domestic productivity. And in Pakistan, the National Tariff Commission was fully defunct for a year and then turned operational at the end of 2016 with revised and widened roles.
Thus, tariff commissions are getting more importance in the neighbouring countries as part of their effort to deal with global challenges in formulating or revising tariff policies.  Instead of revenue-centric tariff policy formulation by the NBR, it is time of make the exercise balanced and effective.
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